Goldman Sachs Bullish On Paytm, Sees 50% Revenue Growth For Next Few Quarters

Goldman Sachs expects fintech major Paytm to deliver about 50% revenue growth for the next few quarters and sees the startup continuing its transition from a payments-only business to an entity with a strong financial services portfolio.

As a result, the global brokerage has reiterated its ‘buy’ rating on Paytm with a target price of INR 1,100, which implies about a 61% upside to the stock’s last close. Besides, Goldman Sachs has also added the stock to its ‘conviction list’, which means the brokerage expects Paytm shares to outperform.

Goldman Sachs views Paytm’s current share price as a compelling entry point.

Despite the Paytm stock being 49% down year-to-date (YTD) on the back of regulatory headwinds and valuation contraction for high-growth companies, Goldman Sachs believes that Paytm’s business model continues to show strong traction. The brokerage said that Paytm also has one of the most compelling growth stories at an attractive price within its overall internet sector coverage.

Last month, Goldman Sachs had said that the Reserve Bank of India’s (RBI’s) guidelines on digital lending remove a key regulatory overhang from Paytm. Reiterating this, it said that it is one of the reasons behind adding Paytm stock to its conviction list.

“Other recent developments such as UPI through credit card, RBI’s payments vision document, etc. are largely neutral/positive for Paytm; we believe the next catalyst could be potential resolution of user onboarding ban on Paytm Payments Bank,” the analysts at Goldman Sachs added.

Besides, Goldman Sachs highlighted Paytm’s improving payment monetisation and take rates, an upside trend of risk-reward strategy, higher visibility in achieving profitability as also some of the major reasons behind adding it to the conviction list.

“Paytm’s consistently high topline growth and good opex control give us more confidence in the company’s ability to be profitable in FY24,” the analysts said.

Goldman Sachs also raised its estimates on Paytm’s loan disbursals by 4%-12% given a strong expansion in Paytm’s lending book.

However, it said that Paytm’s lock-in expiry in November this year might represent an overhang on the stock. Besides, any adverse impact on its operations from the regulatory changes, rise in competitive intensity, any disruption in partnerships, and sub-optimal capital allocation could result in the brokerage getting cautious on the stock.

Paytm disbursed 3.1 Mn loans worth INR 2,427 Cr in August 2022 as against 2.9 Mn loans worth INR 2,090 Cr disbursed in July. The startup disbursed 20.9 Mn loans in the first eight months of 2022. 

However, the company’s shares have been under pressure over the last few weeks, especially since the Enforcement Directorate (ED) conducted searches at its premises in connection with a probe in the illegal loan apps case. Its shares are currently trading at levels last seen in July-end.

On Friday, Paytm shares were trading 1% higher at INR 692.75 on the BSE during the noon trade.